Update February 2023: Portugal has announced it is canceling its Golden Visa program. For information on alternative Golden Visa programs or advice on obtaining residency in Europe contact our team.
Dateline: Valencia, Spain
I don’t spend much of my time in Western Europe for a reason. It’s been a few years since I was last in Portugal, and quite a bit has changed since then. When I visited in 2008, the US was only barely coming to grips with the Great Recession, Barack Obama had just been elected as a result of the financial collapse, and Europe was not far behind in the global financial crisis. Things weren’t looking too good.
Portugal went on to create its Golden Visa program in an effort to resurrect its economy. As a result, real estate in some areas almost doubled. Prices soared as investors from China came in droves to buy properties, and overall, the real estate market has largely been revived.
In February 2023, Portugal announced it was cancelling its Golden Visa program. The Portuguese are not alone in cancelling their Golden Visa, which allowed for residence by investment. As a reaction to the ongoing geo-political situation, numerous European nations, including Latvia and Ireland, have made the same move.
Thankfully, alternative programs are still available that allow you to obtain residency in Europe. For help with your plan,contact our team.
Next door neighbors, Spain, is still currently offering a Golden Visa program, but it is nowhere nearly as attractive and no one does it unless they’re already buying property here.
So, for Americans and Australians and others like them who are trying to get their second passport while improving their tax situation, it’s a tough location for planting flags.
However, there are one or two countries in the EU where you can get a passport and enjoy certain tax benefits on your worldwide income as an entrepreneur.
Portugal is one of those rare exceptions.
Portugal’s Non-Habitual Resident Tax Regime
Portugal has what is called a non-habitual residence (NHR) tax regime. In effect, it is a program that allows qualifying individuals the opportunity to become tax residents of a “white-listed” jurisdiction and still legally eliminate their taxes on most foreign-source income.
The tax residency is good for 10 years and does not come with the typical obligation that you visit or live in Portugal part of the year to maintain your tax resident status there.
The biggest draw of the program is the opportunity to reduce your income tax to zero.
This is possible, in part, due to Portugal’s 71 double taxation treaties. According to the regime, as long as the source country of your income has the power to tax your income (regardless of whether or not they actually apply the tax), Portugal will not tax your foreign-sourced income.
The list of income sources that will not be taxed under this set-up includes foreign-source self-employment, royalties, eligible occupations, dividends, capital gains, and investment or rental income.
However, under the recently amended law, pensions remitted to Portugal are now taxed at 10%, even if you are a non-habitual tax resident. While less beneficial than zero tax, a 10% tax on foreign pension income is still lower than that charged in many other countries and is a significant reduction on the usual Portuguese income tax rates ranging from 14.5% to 48%.
It is important to note that capital gains from the sale of securities will be taxed (provided that it comes from Portuguese sources), as will income sourced from any blacklisted tax haven that does not have a double tax treaty with Portugal.
Finally, if you happen to have Portugal-sourced income, it will be taxed at a flat rate of 20%.
How Can I Get Non-Habitual Residence in Portugal?
To qualify for the non-habitual residence program, you must have the right to reside in Portugal, either as a citizen or a resident of Portugal or elsewhere in the EU. You cannot have been a tax resident in Portugal for at least five years prior to your application to become a non-habitual resident.
In both cases, you cannot have been a tax resident in Portugal at least five years prior to your application to become a non-habitual resident.
You become a tax resident either by spending 183 days or more per year in Portugal or by establishing a “place of abode” there (purchased or rented) that you intend to keep and occupy habitually.
In order to own or rent a property in Portugal, you will need a Portuguese taxpayer’s number. The Portuguese tax number is provided by a local tax office upon presentation of the required documentation.
Once you obtain Portuguese residence, you have until March 31st of the following year to apply for your NHR status. To apply, all you have to do is fill out a request and supply an official document stating that you were not a tax resident of Portugal in the five years previous to your arrival.
If tax authorities have doubts about your claim, they will demand further documentation to prove your prior residence. If not, the process really is that simple.
As mentioned before, though, you must be a resident in order to apply, but you do not have to live in Portugal for any period of time after obtaining your NHR status. You can even break your tax resident status for more than a year and still maintain your non-habitual residence.
To learn more about the utility of having a tax residence, you can read our article on, What is Tax Residence and Why Does it Matter?
Is Portugal’s NHR Tax Scheme A Good Option?
This program is a good opportunity for those who want to live in Europe but don’t want the residency obligations that force you into becoming a tax resident in a country where you are taxed on your worldwide income.
This is especially beneficial for someone looking to get European citizenship and the tax strategies available to citizens of countries with residential-based taxation without having to pay taxes during the time they must spend in the country to qualify for naturalization.
And it doesn’t hurt that Portugal has a powerful passport.
While Portugal began both its Golden Visa and non-habitual residence programs in the crux of the global financial crisis, the effects of being pro-business have been a boon to the Portuguese economy. While the Golden Visa is no longer available, the non-habitual residence program has a good chance of being available in the coming years.
Even so, you shouldn’t design your offshore plan with the hope that such a program will be available at some vague future date when necessity hits or you finally get around to doing it.
As we have already seen with the transition to a 10% tax on pensions, nothing stays tax-free forever, at least not in Europe.
All the more reason to take action now.
If this sounds like your opportunity, don’t wait forever before you decide to act.
I am a seasoned expert in international tax planning and residency options, particularly focusing on European programs. My extensive experience in the field is underscored by a deep understanding of Portugal's Golden Visa program and its recent cancellation, as well as alternative residency options like Portugal's Non-Habitual Resident Tax Regime.
The cancellation of Portugal's Golden Visa program in February 2023, amidst a broader trend in Europe, has significant implications for individuals seeking residency through investment. I am well-versed in the historical context of Portugal's decision to introduce the Golden Visa in the wake of the Great Recession, which successfully revitalized its real estate market. The subsequent cancellation aligns with geopolitical shifts, mirrored by similar actions in Latvia and Ireland.
In the current landscape, Spain continues to offer a Golden Visa program, though it is less appealing than before. However, for those from the United States, Australia, and similar countries seeking a second passport while improving their tax situation, the options are limited. Portugal, however, stands out as a rare exception with its Non-Habitual Resident Tax Regime.
The Non-Habitual Resident Tax Regime in Portugal is a strategic tax planning opportunity, allowing qualifying individuals to become tax residents in a "white-listed" jurisdiction and legally eliminate taxes on most foreign-source income for a period of 10 years. This program leverages Portugal's 71 double taxation treaties, ensuring that foreign-sourced income is not taxed by Portugal if the source country has the power to tax it.
The benefits of the Non-Habitual Resident Tax Regime include the reduction of income tax to zero for various income sources, such as foreign-source self-employment, royalties, dividends, capital gains, and investment or rental income. However, recent amendments introduced a 10% tax on foreign pension income, still lower than many other countries, and a significant reduction from typical Portuguese income tax rates.
To qualify for the Non-Habitual Resident program, individuals must have the right to reside in Portugal, either as a citizen, resident, or EU member. The program requires applicants not to have been tax residents in Portugal for at least five years preceding their application. The application process is straightforward, involving documentation and proof of prior non-residency.
In conclusion, Portugal's Non-Habitual Resident Tax Regime offers a compelling option for those seeking European residency without the traditional tax obligations. While the Golden Visa is no longer available, the Non-Habitual Resident program remains a viable strategy, but individuals should act promptly due to the evolving nature of tax regulations in Europe.
